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Credit analysis: Smartcare Finance plc


Smartcare Finance plc (“SMF”) is involved in the management and operation of a private health care residence, Dar Pinto Malta. In 2019, it issued a secured €5 million 2029 bond on the Prospects MTF market, with a 5% coupon.

SMF was set-up as a financing vehicle and as such its operations are limited to that of providing financing to the group companies. Smartcare Holdings Ltd acts as the Holding company of the Group, and together with Smartcare Pinto Ltd, also acts as a guarantee to the bond. The latter, which is wholly owned by the Holding company, owns and operates the care home.

The majority of the bond proceeds were utilised to refinance loans used for the acquisition and finishing works of Dar Pinto Malta. The care home is located in Qormi and currently has a capacity of 136 beds. The care home contains a Chapel, a dining room, a kitchen and other amenities. The running of the care home includes the provision of all equipment, facilities, in addition to all of the care-giving services offered by the Group.

In the end of 2019, the Group signed an agreement with the Government of Malta for the provision of 90 beds. Subsequently in 2020, the Government took up the remaining beds, which resulted in all beds being covered by a private public partnership agreement at fixed rates for a period of five years.

Impact of COVID-19 pandemic on the Group’s business

The COVID-19 outbreak has caused a havoc across several industries, however low risk industries have demonstrated resilience. The Group’s care home reached full occupancy in March 2020 and continued to generate revenue throughout the past months even though the economy experienced an unprecedented partial lockdown.

Despite the low impact of the outbreak on the Group, the ramifications of the pandemic resulted in the care home industry to lose a number of admissions in order to adhere to restrictions imposed by the Government and health authorities.

As a result of the containment measures employed by the Group, costs for 2020 are expected to exceed previous forecasts. These extra costs reflect the purchasing of additional health equipment, higher cleaning costs, further investment in technological devices to ease communications between residents and relatives, and higher salary costs due to an increase in overtime. However, we do not expect that the decrease in revenue (due to lost admissions) and increase in operational costs will have a material impact on the Group’s profitability margins.

Group’s performance and outlook

The Group’s FY19 performance does not capture a full year performance, additionally the signing of the agreement with the Government in 2019 was delayed, which impacted the occupancy level for last year. Accordingly, our review focuses more on the outlook of the Group, especially during such turbulent conditions.

Except for a decrease in occupancy brought about by the pandemic, the Group’s revenue is not expected to be adversely impacted. Additionally, we expect that the latter will be rectified once the current situation stabilises, which will further boost the Group’s revenue.

As noted earlier, COVID-19 did impact the operations of the Group, however we do not deem these costs as material and therefore we do not expect profitability margins to be impacted significantly. Once the current state normalises we expect such extra costs to taper down.

As at the time of this writing, SMF’s bond is trading at €100.50, which translates into a yield to maturity of 4.9%. We view the Group’s business model as low risk and resilient to the current economic environment. This is further substantiated by the high level of comfort offered by the agreement entered with the Government for all the beds within the care home with rates fixed for the next five years.

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